INTERNATIONAL EDITIONS: HIGHLIGHTS AND EXCLUSIVES, OCTOBER 13, 2008 ISSUE

COVER: The Future of Capitalism (All overseas editions). Senior Editor Rana Foroohar reports that there's a palatable sense that we are leaving the golden era of free markets, easy credit, high-risk deals, and big paydays, and entering a new paradigm of tight money, tough regulation, less speculation and more government meddling in markets. "At a fundamental level, the model of globalization and deregulation has blown up, and that's what's caused the current crisis," says investor and philanthropist George Soros, one of the first to sound a warning about the dangers of complex securitization of nearly everything from mortgages to credit-card bills. "We're now at the end of that ideology." The future, says Soros, will be "less freewheeling, less aggressively speculative, less leveraged, and tighter on credit. We're in the midst of a massive de-leveraging." While it's unclear yet how much help average Americans will get from the government's bailout package once details are finalized, what is clear is that the extremely free-wheeling capitalism of the past two decades is changing-if not into an entirely new ideology, then into a more moderate version of itself.

http://www.newsweek.com/id/162299

Name That Economy!  Jacob Weisburg, editor in chief of The Slate Group and author of "The Bush Tragedy," writes on what we should call the new economic model that has emerged from this economic crisis. "Despite the collectivization of losses and risk, it doesn't qualify as even reluctant socialism. Government ownership of private assets is being presented as a last-ditch expedient, not a policy goal. Yet it's inaccurate to describe our economy either pre- or post-Paulson as simply laissez-faire. A system in which government must frequently intervene to protect the world from the results of private financial misjudgment is modified capitalism-part invisible hand, part helping hand."

http://www.newsweek.com/id/162294

      The Fall of America, Inc. Francis Fukuyama, professor of International Political Economy at the Johns Hopkins School of Advanced International Studies, writes in a guest essay about the damage that the financial meltdown is doing to the American "brand." "Between 2002 and 2007, while the world was enjoying an unprecedented period of growth, it was easy to ignore those European socialists and Latin American populists who denounced the U.S. economic model as 'cowboy capitalism.' But now the engine of that growth, the American economy, has gone off the rails and threatens to drag the rest of the world down with it. Worse, the culprit is the American model itself: under the mantra of less government, Washington failed to adequately regulate the financial sector and allowed it to do tremendous harm to the rest of the society," Fukuyama writes.

http://www.newsweek.com/id/162401

GLOBAL INVESTOR: A Lesson From Stockholm. Guest Columnist Holger Schmieding, chief European economist at Bank of America, looks back at Sweden's banking crisis 16 years ago and the lessons it can offer in dealing with today's international crisis. "Once a crisis spreads from individual institutions to the whole financial system, it takes swift and decisive government action to restore trust. If banks can draw on government support that comes in convincing size-but with clear strings attached-fewer

banks are forced by their own balance-sheet problems to deny credit to worthy customers," he writes. "In a systemic crisis, the taxpayer may have to put considerable amounts of money on the line, but resolute action can help mitigate the pernicious credit crunch, which can turn a financial crisis into a disastrous and much more costly meltdown. Sweden shows there is hope after the crisis."

http://www.newsweek.com/id/162308

The Perils Of Thrift. Hong Kong Bureau Chief and Asian Economics Correspondent George Wehrfritz reports that China's financial crisis is the opposite of America's. China's economy is as thoroughly hard-wired against consumption-led growth as America's is for it. China's domestic consumption was an anorexic 38 percent of its GDP in 2007. The other 62 percent came from investment, much of it spent on export-oriented infrastructure, plus net exports. Consumption as weak as China's is unprecedented, and it makes the shift to a domestic demand-led growth model extremely tricky. The idea that China can make this transition smoothly from such a "skewed position ... is rather naive," says Hugh Young, managing director of Aberdeen Asset Management Asia.

http://www.newsweek.com/id/162300

The Monster That Ate Wall Street. Assistant Editor Matthew Philips explains the role that "credit default swaps" have had in the economic crisis. In the mid-'90s, some JPMorgan bankers developed a sort of insurance policy that banks could take out against loans they had given:  a third-party would assume the risk of that debt going sour, and in exchange would receive regular payments from the banks, similar to insurance premiums.  But those bankers didn't realize they were creating a monster.

http://www.newsweek.com/id/161199

A Piece Of the Peace. Jerusalem Bureau Chief Kevin Peraino reports that the uptick in violence in Israel is connected to the surge in settlement construction. Even as Bush Administration officials have demanded a settlement freeze, settlers in the Yitzhar settlement have erected ten new caravans in a dusty lot on the hilltop's fringe. The Israeli ruling party often turns a blind eye to (or encourages) such expansion, rationalizing that keeping its parliamentary coalition together and protecting the prime minister's right flank is a more important short-term goal. At the same time, the prospect of returning land to the Palestinians under any deal, intensifies the settlers' determination to build.

http://www.newsweek.com/id/162378

WORLD VIEW: The Age of Bloomberg. Newsweek International Editor Fareed Zakaria writes that America's financial crisis does not signal the end of laissez-faire capitalism or free markets. "What is happening now is a deep, wrenching, financial crisis unlike any we've seen since the 1930s. It's contributing to a broad slowdown of the American economy...It's ugly. But it's not unprecedented," Zakaria writes. "The history of capitalism is filled with credit crises, panics, financial meltdowns, and recessions. It doesn't mean the end of capitalism." Zakaria writes,  "The government will have to experiment with massive interventions in the market until credit starts flowing smoothly again. But such actions have become part and parcel of modern capitalism."

http://www.newsweek.com/id/162272

THE LAST WORD: Abdullah Gul, president of Turkey. President Gul shared his thoughts on the United States' relationship with Iran and his role in getting the two countries to come to an agreement. "The problems between Iran and the United States are, of course, something that concerns us. We would like to see a normalization of the relations... Nuclear issues are important for us as well: we don't want to see any weapons of mass destruction in our neighborhood," Gul says. "I believe the package that has been presented by the six countries most recently is a very good one... I have spoken with President Mahmoud Ahmadinejad, I explained this to him, and I hope, we hope, that the problems will be resolved through dialogue."       

http://www.newsweek.com/id/162306

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